Exactly How Long Does Getting Pre-approved Take?
The first step in buying a home is to get pre-approved first, then you can house shop. The first thing you should do once you decide you want to buy a house is to get pre-approval.
It’s something you have to do, but how long does it take? If it’s so important, surely it must take a while.
The best part of buying a house is going house hunting. It’s fun and lets you imagine what you would do differently in each house when you try to picture yourself living there. Thankfully, the approval process is not too long.
The internet, online applications, and computerized analysis have made the process faster and easier. Are you ready to get approved? Read on to find out more.
When dealing with the pre-approval process for the first time, many buyers have the impression it will take a long time. It’s actually a pretty easy part of buying a home.
- Figure out how much you are willing to pay for your mortgage
- Try out some mortgage calculators online to get a rough estimate of your payments and loan amounts
- Get some of your last pay stubs handy and look up your last bank statement. Then, get a lender on the phone. They will run your information on the computer. The system will then state whether you are approved or not, the whole process can take as little as 20 minutes.
Get the Pre-approval First
This is the first step that you should take and it only takes a few minutes.
There are some steps that you need to take when you are considering being a homeowner. One of those steps needs to be deciding how much you are capable of paying each month on your mortgage.
This is actually a part of the pre-approval process for your mortgage, figuring out what you can afford. Let’s say you are currently paying $1,500 a month for rent, if paying $2,000 a month makes you lightheaded, you have already set a limit for yourself. You did all this without even speaking to a lender.
Using a Pre-qualification Calculator
A mortgage calculator is an online tool many people use to estimate what home price they can afford. Mortgage calculators take about a minute to use. They will ask you to type in your monthly income and debts. They will then give you a range of payments and loan amounts that would be affordable for you.
Mortgage calculators tell you what people with similar debt and income to you would qualify for. But that’s all it tells you; it does not give you a go-ahead to start putting in offers. None of the information has been verified or examined by an underwriter, so you cannot use these estimates to make an offer on a house.
Some pre-qualification letters are done without even pulling your credit. Sellers and agents know that these letters are not worth much because they are not backed with proof. That’s why they do not accept anything that doesn’t factor in your credit.
Automated Underwriting System
The good thing about this process is that you can easily get an important document. It takes less than 5 minutes for you to gather your information and call a lender. This is the world of financial technology. They use an automated underwriting system, or AUS
Some lenders have their own proprietary mortgage calculators, but it’s common for lenders to use Freddie Mac’s Loan Prospector (LP) and Fannie Mae’s Desktop Underwriter (DU).
All you have to do is give the loan officer your bank balances, income information, and permission for them to pull your credit. The AUS will run all of your information through different calculations and they will make a decision based on what information you have provided.
The system will either “approve,” “refer,” or “refer with caution.” If you get “approve” it means as long as your documentation matches what you said, you are good to continue your home-buying journey.
Completing Your Loan
A “refer” means to get you approved, there may need to be some changes made. This could mean they need more information or you are not eligible for the program. A “refer with caution” means you are most likely not approved.
You might get a letter saying to finalize your loan you need to provide bank statements showing how much money you have, a pay stub showing what you are earning, and a statement from your auto loan provider stating your loan was paid on time.
These are all requests you might receive via a phone call. The faster you submit the requested items, the faster the process will move.
Getting Pre-approved for a Mortgage Is Fast and Easy
When house hunting, a pre-approval letter is a powerful tool to have in hand. Some agents won’t let you view houses without it, and you definitely can’t put in any offers without this letter on hand. Next time you have a few minutes, gather your documents and make a call to a lender. You could get pre-approved faster than your pizza takes to be delivered.
How Are Today’s Mortgage Rates Looking?
Mortgage rates are constantly changing and you can always ask lenders about the current mortgage rates and get quotes while on the phone. It’s quick and easy to look at what different program rates are going for.
Does a Pre-approval Letter Ever Expire?
The most important step you can make when buying a house is getting pre-approved. Without a pre-approval letter, you can’t put an offer in on a house you like. Once you get the letter, how long does it last?
This will depend on the lender that gave you the pre-approval. Mortgage lenders are all different. With some lenders, a pre-approval letter may last 90 days, and some only last 30.
Also, keep in mind that a pre-approval does not seal you into dealing with a lender. You are still able to shop around for the lowest rate you can find before you buy. You are good to get pre-approved as soon as you want to start house hunting. The pre-approval is not going to financially tie you into anything.
Why Doesn’t a Pre-approval Last Forever?
It’s unreasonable for a lender to give open-ended commitments to finance anyone’s home, because circumstances can always change. They can’t have you collecting a loan for months or years based on an old pre-approval letter.
During this time your credit could have gotten worse. You could have lost your job, or been demoted. Your qualified budget could have gotten smaller or bigger than what it was when you first got pre-approved.
How long is a pre-approval good for? Some lenders have 90-day expirations, while others have 30, 45, and 60 days. Because all lenders are different, it’s good to ask the ones on your list what their policies are.
When Should You Get Pre-approved for a Mortgage?
It’s often the first thing you should do when you are starting to look at homes. If you do it in the beginning, it can allow you to take full advantage of the window your lender gives you before their pre-approval expires.
Make sure that you don’t get pre-approved too early. If you are planning on buying a home in 6 months, you shouldn’t get an approval now. Thankfully, when you are ready, the process doesn’t take long at all.
What’s the Difference Between Pre-approved and Pre-qualified?
We hear so much about pre-approvals that we often don’t know the difference between pre-approval and pre-qualification. Since all lenders have their own definitions of the two, it can be confusing.
The difference between the two is typically:
- Pre-approval- You give your lender your financial information and supporting documentation. They run a credit check and double-check the information and documents you gave them.
- Pre-qualification- You simply tell your lender your information without supporting documentation. They assume you are being honest without checking documents or your credit.
This is the reason many real estate agents and sellers think less of a pre-qualification letter. If you want to be taken seriously, a pre-approval letter will do the trick.
What Goes Into a Pre-approval?
You should find some good mortgage calculators online and get a rough ballpark for the amount you can finance. This will allow you to be more realistic about the price range you can expect to get out of an approval.
If you have all of your documents on hand, it can take the pre-approval only minutes to obtain. You need to make sure you have your:
- Proof of Employment
- Social Security Number
- Last Months’ Worth of Pay Stubs
- Recent Bank Statements
- W-2, 1099 (if self-employed), or any other income tax information
If you plan on funding your down payment from somewhere other than your bank account, you will have to provide documentation for that as well. You will have to prove where the money is coming from. This could be a gift letter showing that the funds you are using were gifted to you and are not required to be paid back.
How to Afford a Down Payment
All that a lender needs to do after being given these documents is check your credit. Keep in mind that you are not required to stay with this lender once you get your pre-approval. After your offer on a home is accepted, you can shop around for the best rate you can find.
Getting multiple pre-approval letters also won’t hurt your credit if they are all in a close period. You may need to work some extra hours and set some realistic goals when coming up with a down payment. When you first decide to buy a home, you should start a savings goal.
Estimate how much you think you can get approved for, and start saving up at least 5% of that amount for your down payment. That way, when you go to close on a house, you will already have a good amount of money to put down.
On top of being given a gift from a friend or family member, there are also some down payment assistance programs. These programs will vary from area to area and will require you to pay back the money plus interest.
What to Do When Your Pre-approval Letter Expires
A home is a major purchase. A home is the most important purchase of many people’s lives, so you don’t want to buy a home you don’t love. You may pass up a lot of houses because you don’t like them and that’s okay.
If you wait too long to find a home, your pre-approval letter may expire. If this happens you just need to ask the lender for another letter. Depending on the lender and the length of time from your last pre-approval, they may ask for more recent documents. They also might check your credit again.
If your information has stayed rather consistent you should be all good to get approved again and it shouldn’t take long. Keep in mind, while many lenders do not charge for the pre-approval, some may charge a fee.
Should I Lock and Shop My Pre-approval Rate?
Your lender will work out the most you can afford in payments and at a certain rate. Your pre-approval letter will likely mention what this rate is. If rates were to rise, your payments would go up and this might make it unaffordable to you.
Some lenders offer a way to protect you from this. It will allow you to lock in the rate that you have in your letter. So, let’s say after you got your letter and rates went up, you would still be held to the rate listed on your letter with a locked-in rate.
If this seems too good to be true, there is a catch. You will most likely have to pay a deposit that is 1% of your new home’s purchase price to get locked into this rate. This may seem like a bad thing, but in a market where rates just keep climbing, it would be great to look into this.
If you do choose to lock and shop, make sure the deposit is refundable. If you don’t proceed with a purchase, you will want that money back. Not all lenders will give your deposit back, some may view it as a fee and keep it. If you are thinking about using a locked-in rate, make sure you ask the lender what policies they have.
Get Pre-approved as Soon as You Are Ready to Shop
Make sure you get your pre-approval before you start looking at houses. It will give you a clear price range of what you can afford, and allow you to narrow down your search.
If you find a house you love, you won’t be able to put in an offer without a pre-approval letter, so it’s important to already have one on hand. The pre-approval process only takes a few minutes to start and you are not obligated to stay with that lender when taking out your mortgage loan.